DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2(1)(2), BANGALORE vs. M/S EXIDE LIFE INSURANCE COMPANY LIMITED , BANGALORE

Per B.R Baskaran, Accountant Member

2. The grounds of appeal urged by the Revenue read as under:-

“1. CIT(A) erred in holding the surplus from Shareholder's funds as income from life insurance business U/s 44 of the IT Act, despite the fact that the nature of this income is completely different from the premium income under policy holder fund, which is the only income from the life insurance business to he determined U/s 44 of the IT Act. Honbie Supreme Court has already admitted the SLP of Department on this issue in the case of CIT Vs ICICI Prudential Life Insurance Co. Ltd. (2016) 242 Taxman 97 (SC).

2. CIT(A) erred in holding that the profits of the Life Insurance business would be determined as per the financial accounts and not as per the surplus reflected in Form I of 'Acturial Valuation' as per the provisions of Section 44 of the IT Act read with the First Schedule.

3. CIT(A) erred in not excluding the loss of Rs. 93,39,11,564/- in the pension account, which is exempt U/s 10(23AAB) of IT Act, and which should have been excluded from the computation of Total Income.”

4. Before ld CIT(A), the assessee contended that merely because surplus from shareholders account and policy holders’ account is disclosed separately in the financial statements, the income in shareholders’ account should not be treated as distinct income separated from life insurance business. It was further submitted that as per the Insurance Act, income from shareholders account as well as policy holders’ account constitutes part and parcel of life insurance business only. The assessee also placed reliance on the following case laws in support of its contentions:-

3. PNB Metlife India Insurance Co. Ltd., Vs. CIT (ITA No.1508/Bang/2017) (Bangalore ITAT

5. The ld CIT(A) was convinced with the contention of the assessee and accordingly, by following the above said decisions, held as under:-

“Having considered the submissions, it is observed that the issue under consideration is squarely covered by the above judicial pronouncements including that, of the jurisdictional ITAT in the case of the Appellant for the Asst, Year 200010 in ITA No,792/Bang/2016) I Bangalore ITATI and also in the case of PNB Met.life in [Bangalore TAT] AY 2011-12 & FFA No, 179/Bang/2017) AY 2012-13. The facts and circumstances of the matter under consideration are similar to that of the facts in the cases considered by the Hon'ble Bangalore ITAT in the decisions cited supra. Under the circumstances, respectfully following the decisions of the Hon’ble ITAI, I am of the view that the surplus horn shareholders account. though disclosed separately in the financial statement, does not become separate from life insurance business. Accordingly, this ground of appeal is allowed.”

6. We heard the parties and perused the record. We noticed that the ld CIT(A) has followed the decision rendered by the coordinate bench in the assessee’s own case relating to asst. year 2009-10 and also decision rendered in the case of PNB Met Life (Supra) Since the ld CIT(A has followed the decision rendered by Tribunal on this issue, we do not find any necessity to interfere with the order passed by him.

7. The ground No.3 relates to claim of set off of loss of Rs.93.39 crores computed under the Pension account against business income. The ld AR submitted that an identical issue was considered by the coordinate bench in the assessee’s own case in asst. year 2009-10 and the Tribunal has decided this issue in favour of the assessee.

7.2 We have examined the issue before us. It is noted that the A.O has not had the occasion to examine the factual basis of the quantification of loss as the claim has not been made by way of a return or revised return. It would be relevant to point out that the assesse itself has not made the claim in the return and perhaps rightly so. As regards the reliance on the decision of [IC (supra) of the Hon'ble Bombay High Court, in our respectful view the following decision of the Apex Court which has laid down the law on losses arising from an exempt source is more appropriate. 7.3. The Honorable Supreme Court in the case of Harprasad 99 ITR 118 has held that when any income is exempt at source, the loss would not consequently enter into computation of income. The relevant portion is as follows-

“It may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set-off Its sole purpose is to set off the loss against the profits of a subsequent year. It pre-supposes the permissibility and possibility of the carried- forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that if such set-off is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be "carried forward". Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year from a taxable source.”

7.4 In view of the above decision we are of the view that the claim of the assessee not legally tenable. As the income from pension funds is congenitally exempt there is no question of allowing set off of losses from such exempt source. This objection rejected.”

covered in favour of the Assessee by the decision of the Hon’ble Bombay High Court in the case of CIT(A) Vs. LIC of India Ltd., (2011) 12 taxmann.com 388 (Bom) as explained while dealing with similar issue in AY 2009-10 in the earlier part of this order. The contention of the Revenue in this regard is that the Hon’ble Supreme Court in the case of Harprasad (Supra) has held that when any income is exempt at source, the loss would not also consequently enter into computation of income. As rightly contended by the ld counsel for the assessee it would be the case when income is computed under the normal provisions of the Act. However, in the case of Assessee’s engaged in life insurance business Income has to be computed as laid down u/s 44 of the Act. Section 44 of the Act starts with a non obstante clause and overrides the provisions of the Act relating to computation of income under the various heads of income including income under the head profit and gains of business of insurance. Therefore, we are of the view that stand taken by the DRP cannot be accepted. We, therefore, direct that loss from pension fund which is exempt u/s10(23AAB) be excluded while determining surplus as per actuarial valuation surplus u/s 44 of the Act. Ground II raised by the assesese is allowed.”

Order pronounced in the Open Court on 23rd October, 2019.